Here’s how much the ECB will raise interest rates

8 June 20222 years ago babelfish

Does inflation force the ECB to accelerate the rate hike? The analysis by Martin Wolburg, senior economist at Generali Investments

Inflation in the euro area jumped to a new high of 8.1% yoy in May, four times higher than the ECB's target, and we expect it to remain around these levels in the coming months.

War-related increases in energy and food prices accounted for more than half of this increase. But underlying inflationary pressure will also remain very high, for example producer prices rose 37.2% year-on-year in April. Concerns from the ECB will increase.

Negotiated wage growth accelerated to 2.8% yoy in Q1, the highest in over 10 years. This is one of the key parameters that the Governing Council examines to assess the delayed effects of rising commodity prices. In addition, medium-term market inflation expectations are considered, currently above 2% and the average inflation forecast over the next five years, at 2.1%.

The members of the Board of Directors unanimously stress the need for action. In view of the meeting on 9 June, the end of QE by July and the indication of a rate hike in July now seem to have been done. How fast will the ECB proceed? Some members of the Governing Council are even claiming a 50 basis point hike next month, while the markets are expecting hikes of 125 basis points overall by the end of the year. We still expect more measured steps as activity will moderate and the risks of fragmentation among member countries could intensify. However, in light of the latest data, we believe four consecutive hikes of 25 basis points (July, September, October and December) in 2022 are more likely than three.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/bce-tassi-inflazione/ on Tue, 07 Jun 2022 15:51:37 +0000.